American Airlines: Profit most for any carrier ever

An American Airlines flight taxis at Seattle-Tacoma International Airport in Seattle.
An American Airlines flight taxis at Seattle-Tacoma International Airport in Seattle.

FORT WORTH -- American Airlines reported a record profit for the fourth quarter and for all of 2015 as a sharp drop in fuel prices more than offset lower revenue.

The world's biggest airline said Friday that its earnings were the highest ever for any carrier. American is poised for another big year: Airline officials said they expect to save another $2 billion on fuel in 2016.

American Airlines Group Inc. posted net income of $3.28 billion in the fourth quarter, but the results were inflated by a huge accounting gain from a tax item.

Without that and other one-time gains and losses, American said it earned $1.3 billion or $2 per share, compared with $1.1 billion, or $1.52 per share, a year earlier.

That was still a record and beat Wall Street expectations. The average estimate of nine analysts surveyed by Zacks Investment Research was for earnings of $1.96 per share, and 15 analysts surveyed by FactSet predicted $1.97 per share.

Revenue fell 5.2 percent to $9.63 billion, matching the FactSet forecast.

But American more than offset the $530 million decline in revenue with savings of nearly $1.1 billion -- 41 percent -- on jet fuel. The steep drop in oil prices since mid-2014 has been a boon to airlines. They have passed some of the savings on to consumers in lower fares but kept much of it.

For all of 2015, American earned a record $7.6 billion. Even excluding the tax gain, adjusted profit was $6.3 billion, also a record. Parker, the chief executive officer, said it was more than any airline had ever earned.

If there was any worrisome note in the report for American's employees and investors -- but welcome news for passengers -- it was further evidence that airfares are falling.

American did not disclose its average fare. However, in the fourth quarter, passengers flew 3.8 percent more miles than a year earlier but paid 8.9 percent less per mile, a sign of lower prices. Investors prefer to look at how much passengers pay for every seat flown one mile -- that accounts for unsold seats -- and that figure also fell by 6 percent.

The fourth-quarter and 2015 net income included a $3 billion credit because American reversed a tax valuation now that it is making money after huge losses in earlier years. Delta and United have made the same accounting change. With or without the tax credit, 2015 was a record year for American.

American said fares would remain under pressure this year from stepped-up competition in the U.S. and a strong dollar that's hurting demand abroad.

A rebound in a closely followed revenue yardstick will probably be delayed "by a quarter or two" compared with an earlier forecast that it would turn positive in the second half of the year as crude prices stay near a 12-year low, Scott Kirby, the airline's president, said Friday on a conference call.

That's providing little prospect of speedy relief from declines in revenue collected for each seat flown a mile. The drop in so-called unit revenue during the last year has caused concern among investors because it's a sign of weakness in fares.

"Stocks are trading on unit revenue expectations, not on earnings," Michael Derchin, a CRT Capital Group LLC analyst, said. "It's the one thing the market seems to be very, very focused on."

Shares of Fort Worth-based American Airlines Group Inc. rose 85 cents, or 2.2 percent, to close Friday at $38.99. The shares began the day down nearly 10 percent since the beginning of the year and 25 percent in the last 12 months.

Information for this article was contributed by Mary Schlangenstein of Bloomberg News.

Business on 01/30/2016

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